June 8 (Bloomberg) -- Apple Inc.’s iPhone is outdistancing
the pack of phones that use Google Inc.’s rival software, thanks
to video-calling features, a sharper screen and its array of
225,000 applications, analysts said.

The iPhone 4, unveiled yesterday by Chief Executive Officer
Steve Jobs, is thinner, has better resolution and adds a front-facing camera. It also sports a new type of glass and a
stainless-steel band Apple says is designed to improve network
reception.

Apple is counting on the product to fend off mounting
competition from Android, a Google smartphone operating system
used by Motorola Inc. and HTC Corp. The iPhone is evolving fast
enough to keep competitors at bay, even if the new version
lacked major surprises, said William Kreher, an analyst at
Edward Jones in St. Louis.

“They remain the technology innovation leader,” Kreher
said in an interview with Bloomberg Television. “While nothing
was really revolutionary in terms of the new features, I think
that Apple took a nice step forward.”

Jobs, who unveiled the phone at Apple’s developer
conference in San Francisco, downplayed the threat from Android.
The iPhone was the No. 2 smartphone in the U.S. in the first
quarter, with a 28 percent share, he said, citing Nielsen Co.
data. Research In Motion Ltd. ranked first, with a 35 percent
share, while Android-based devices accounted for 9 percent.

Gizmodo Leak

The competition from Google and other phone makers “has
sparked an almost fierce level of innovation at Apple,” said
Yair Reiner, an analyst at Oppenheimer & Co. in New York. “The
competition is taking aim but the target keeps moving faster.”

Though many of the iPhone 4’s enhancements were expected --
a prototype of the iPhone was dissected and photographed by
technology blog Gizmodo.com in April -- the upgrade provides
Apple with a unique package of capabilities, analysts said.
While it’s not the first to offer video chat on a smartphone,
it’s the combination of features, coupled with the apps and
iPhone interface, that will extend its appeal, they said.

Maynard Um of UBS AG in New York called the new features
“significant.” Ben Reitzes at Barclays Capital in New York said
the iPhone 4’s “exciting new features” will persuade current
users to trade up to the new model. Katy Huberty of Morgan
Stanley in New York said Jobs’s demonstration was “compelling.”

Sales Catalyst

“The combination of a new form factor and software will
likely serve as a powerful catalyst for iPhone 4 sales,” said
Shaw Wu, an analyst with Kaufman Bros. LP in San Francisco. He
recommends buying the shares, which he doesn’t own. “The rich
features, refinement and higher build quality are worth noting
and difficult to comprehend without seeing and using the new
iPhone firsthand.”

Even so, the new abilities come with caveats. The video-calling program, called FaceTime, will be limited to Wi-Fi
networks for now. That means customers won’t be able to make
video calls using AT&T Inc., the exclusive U.S. wireless carrier
for the iPhone. And while the phone can tap upgraded networks,
that technology won’t be available across AT&T’s system until
the middle of next year.

In a reminder that some of Apple’s features are dependent
on the reliability of wireless networks, Jobs struggled to use
some of the new tools during his presentation.

Wi-Fi Disruption

The trouble stemmed from a poor Wi-Fi connection, rather
than AT&T’s service. Jobs asked attendees to shut off the
wireless connections on their computers and mobile hot spots
because of interference, saying, “I’d like you to look around
and police each other.”

Apple, based in Cupertino, California, fell $1.61 to
$249.33 at 4 p.m. New York time in Nasdaq Stock Market trading.
The shares have gained 18 percent this year.

When Apple’s first iPhone appeared in 2007, its touch-screen design and app-based interface shook up the market.
Research In Motion and other mobile-phone makers clambered to
add similar features to their devices. Since then, the
industry’s rapid-fire advancements have made it harder for an
upstart to catch up quickly, said Charles Golvin, an analyst at
Cambridge, Massachusetts-based Forrester Research Inc.

“Apple and its competitors are steadily bringing better and
better technology and software to go with it to the market,” he
said. “In that environment, it’s difficult to leapfrog the
competition in the same way the iPhone did when it was first
introduced.”

Top Seller

The iPhone is now Apple’s top-selling product, generating
40 percent of revenue last quarter -- more than the Macintosh
computer. The company has three products that work with its App
Store: the iPhone, iPod Touch and iPad. All together, Apple will
have sold 100 million of those devices by sometime this month,
Jobs said.

There are now more than 225,000 iPhone and iPad apps
available. The company has paid out more than $1 billion to
developers, who get a 70 percent share of the programs sold
through its App Store, Jobs said. Android developers, meanwhile,
have only created about 50,000 apps, according to Sanford C.
Bernstein & Co.

The iPhone 4 adds a camera for capturing high-definition
video, as well as software that makes video chatting possible.
Its so-called retina display packs four times as many pixels in
the 3.5-inch screen, delivering higher-resolution text, photos
and videos. New iPhone operating-system software, called iOS 4,
supports features such as multitasking -- the ability to run
more than one application at the same time.

‘Razzle-Dazzle’

The iPhone 4, set to debut in the U.S. and four other
countries later this month, also is about 24 percent thinner
than its predecessor, the iPhone 3GS. A 16-gigabyte model will
cost $199, and a 32-gigabyte version will sell for $299. Apple
will offer an 8-gigabyte version of the 3GS for $99.

“It will have enough razzle-dazzle,” said Gene Munster,
an analyst at Piper Jaffray Cos. in Minneapolis, who attended
yesterday’s gathering. He rates Apple shares “overweight” and
doesn’t own them.

Apple, which has delivered a new iPhone every year since it
first came out, sees the fourth-generation device as “the
biggest leap” in design and functionality in three years,
according to Jobs.

A mobile advertising system called iAd will be built into
the new iPhone software, giving app creators a new way to make
money. Software developers will get a 60 percent cut of revenue
from ads placed by Apple within their programs.

Advertising

After eight weeks of taking orders, Apple said yesterday it
has commitments for $60 million in advertising for the second
half of the year from companies including Target Corp., Chanel
SA, J.C. Penney Co., Sears Holdings Corp., Campbell Soup Co. and
Nissan Motor Co. The first ads will appear July 1.

With iAd, Apple is less concerned about making money from
the ads, Kreher said. It’s more about making its software and
mobile devices more attractive for developers -- and creating
one more way to distinguish itself from Google.

“They just want to cultivate a better ecosystem for
developers and advertisers to be comfortable in working with
them,” Kreher said. “It’s really just about getting more
people on board then driving the bottom line.”